1 Thresholds for Employment and Unemployment. A Spatial Analysis of German Regional Labour Markets 1992-2000

Abstract. This paper investigates the laws of Verdoorn and Okun in order to determine thresholds for employment and unemployment in all Germany for the period 1992-2000. Disaggregated datasets for 180 German functional regions provide the basis for obtaining efficient estimates and spatial labour market characteristics. To capture cross-section dependencies, a spatial SUR model is built up utilizing the eigenfunction de-composition approach suggested by Griffith (1996, 2000). The results indicate that minimum output growth sufficient for a rise in employment is below the level needed for a simultaneous drop in the unemployment rate. If spatial effects are not controlled for, the thresholds seem to be markedly overrated